Lou S.

I have a custodian who did a total distributions this year (2022) for two people (both NHCEs both had RBDs of 4/1/2023) that were rolled over but each had a RMD that was supposed to be processed prior to rollover. I'm pretty sure the fix is that the participants need to be instructed to remove the RMD plus earnings from their IRA as an excess IRA contribution and the Plan needs to issue two 1099-Rs one for the taxable amount of the RMD with code 7 and the other the rollover for balance. Is this the correct fix? Is this an eligible fix under self correction or does it require VCP filing? It's not like the Plan can make an RMD from their remaining balance as the remaining balance is now $0.00.

Did you have covered employees those years? In which case you were supposed to file form 5500 or 5500-SF instead of 5500-EZ which would be filed under a different late filer program through the DOL. Or were you 1 person plan but your assets were less than the amount required to have to file the form those years? If so, then you would have reasonable cause to get the penalties waived as the returns were not required. I'm unclear why they would tell you those years are ineligible.

You are past the time to make a 2021 PS allocation.

The ERISA Plan Administrator (who is probably the Plan Sponsor in a small plan) is responsible for making the RMDs. While the potential excise tax is on the Plan Participant, failure to comply with §401(a)(9) is a Plan Qualification issue so get the checks issued and sent. Last time I checked the R sands for Required and participant consent is not required. If she just retired or turned 72 and this is her first RMD you have until 4/1/2023 to get it done. If it's an on going thing you have until 12/31/2022.

I don't know the cite but I do know that it's been a provision in our prototype document going back at least to the GUST document (and probably earlier) that you could have rollover money available for distribution at any time or subject it to the any other restrictions you general have on in-service distributions.

Won't you lose the safe harbor exemption if you terminate it 12/15? Is severance required or discretionary? If it's discretionary why doesn't the Dr. simply reduce it by 3% and make the contribution?

Not without amending the plan.

What type of plan? What sources of fund are in the plan? Certain sources are only eligible for in service on after age 59.5, other sources can be withdrawn earlier if the plan allows and and you meet certain conditions.

If that's what your document says, I would think annual compensation would control for calculating the match.

Read the document. What you are asking is allowable and should be addressed in your plan document as to who will receive a QNEC/QMAC and how it will be done.

Facts and Circumstance on whether a new issued notice over riding the prior notice would be considered timely. The more documentation that you can detail that employees received the updated notice and had an effective chance to change their deferral election before 1/1, the more likely you are to be OK under a facts and circumstance determination. But yes you're past the "safe harbor period" for providing the safe harbor notice.

I believe you have coverage failure and will need to give PS contrib to NHCEs. Might be a good time to suggest SH match for 2023. And may want to suggest a 3% PS for all in 2022.

I think it's the increase you need to exclude from the cushion for 2 years. Since the plan was frozen than all of the new accrual in 2021 and 2022 would need to be excluded when calculating the cushion amount.

Look at §416 on who must receive a top heavy minimum contribution in a DC plan.

RMDs for 2020 were suspended and that included folks who turned 70 1/2 in 2019 who had a RBD of 4/1/2020. 2021 was clearly required by 12/31/2021 and he obviously has another due by 12/31/2022 for 2022. Assuming this is a DC plan or IRA and not a DB plan.

Granting service for eligibility and vesting for service with another entity would not be a problem, subject to nondiscrimination but since there are no NHCEs you'd be fine from that standpoint. But unless you have a controlled group or affiliated service group I think using the compensation from the prior entity is problematic under the exclusive benefit rule and also don't believe you would be able to use it for establishing a 3 year high salary for 415 limits. Someone else might have a more aggressive position. If so I'd be curious to see what citations would be used to support it.

I'm not aware of any provision to waive the RMD in year of death (I'm assuming participant is past RBD). If you have beneficiaries you would pay it to the beneficiaries and code it as a death benefit and let them know it is not eligible for rollover. But as a practical matter determining these things and getting them accomplished before 12/31 can tricky from a practical standpoint. Especially getting a custodian or reckord keeper to act when they don't have another authorized agent on file. This does seem to be a case where there IRS would likely waive the 50% excise tax for reasonable cause assuming the RMDs are made as soon as practicable but from a plan standpoint I think you might be looking at EPCRS for a waiver of failure to satisfy 401(a)(9). I can't recall if that falls under VCP or something you can self correct. And while I know this is not correct I believe one time we did make a payment to the participant after death when he died late in the year and the heirs deposited it into his bank account post mortem but I think the check was issued a few days before his death but arrived shortly after he passed the 1099-R was issue to the participant in that case.

TH not an issue. In DC plan TH goes to non-key employed on the the last day of the year. You have none as only other EE terminated. Now if you make a PS, the terminated EE would need one or you'll fail coverage.

The correction is to return the over payment.

How much is he looking to put in for the year? Prior year testing with owner at 5% + catch-up is ~$11,500. I mean if he's looking to put in that or less you could do it with no contribution to the employee.

Sounds correct. One potential pitfall I'm not sure about is that if he's a sole proprietor his income isn't technically earned until 12/31 I believe so I'm not sure what the IRS position would be on his 415 pay for the year is if the termination date is before 12/31.

It depends on the timing of his deferrals. Did he exceed the 402(g) limit in the 2021 calendar year? If he didn't exceed the 2021 402(g) limit you won't be able to recharaterize any of his July 1, 2021 - December 31, 2021 (assuming there is no plan imposed limit that might make it catch-up) because he hasn't exceeded any applicable limit. And you'll essentially "lose" the remaining $5,300 2021 catch-up. If he deferred over $20,700 in calendar year 2021 any deferrals between that amount and $26,000 can be recharaterized because you have exceed an applicable limit (that being 402(g)). Since you are saying he did not exceed the calendar year limits, you can't recapture that 2021 catch-up since the recharaterization is considered as of the plan year end when you fail the teas making it a 2022 catch-up

Cares Act (and related Amendments) seem both pretty specific to 2020 as well as being completely discretionary, I can't see why it would apply to a plan established after 2020.

My understanding of ROTH-IRA distributions is that basis is recovered first so if the partial distributions is less than the basis there would be no taxes due since participant is over 59 1/2. If partial withdrawal exceeds the basis recovery the earnings would be taxable as you don't meet the qualified ROTH distributions since it is less than 5 years.

It's not strange and has come up more than once on this board. The consensus seems to be that yes they have to participant for IRS compliance reasons. I believe the objection is usually centered around "interest" being against their faith.